EDMOND — The $8,000 first-time homebuyer tax credit has been extended. Added to this already successful government program is a $6,500 tax credit for subsequent homebuyers. Combine these substantial financial incentives with extra housing inventory in the Oklahoma City metro area, and you’ve got the makings for a brisk real estate market throughout the winter and spring.

More homes being sold means that there will be more homebuyers looking for a good deal on a mortgage. Therefore I offer the following four suggestions as examples of how just about anyone can get a better deal on their next mortgage.

Bring fewer dollars to the closing table. Everyone knows when you buy a house there are lots of unexpected moving expenses. The curtains from your old house don’t fit, or the area rug you thought would look good doesn’t. Why not get the house you want and keep more of your money in your pocket to cover these expenses. How? I’m glad you asked.

You’ll have to check with your lender but in most cases it is allowable for the sellers to cover some or all of your closing costs. Really? Yeah, really. Here’s how it works. Let’s say you’ve found a home for sale at a good price of $150,000. If you are getting a conventional loan some lenders allow the seller to pay up to 3 percent of your closing costs; FHA allows up to 6 percent. That’s all the way from $4,500 to $9,000 toward your closing costs (and I can’t imagine anyone signing a $150,000 mortgage with $9,000 in closing costs). If you choose to use this strategy, you’ll need to work with your real estate professional to work out the details with the sellers.



Buy a lower rate

Another way of describing this strategy is “buying points.” Here’s how it works. When lenders quote an interest rate it’s not the lowest available rate. But to get those lower rates will cost you. Just how much will it cost? Most times the cost is quoted in points. Simply put, a point is 1 percent of the loan amount. So if you’re looking at a $150,000 loan amount, one point is $1,500, two points is $3,000, and so on.

Your lender will have to tell you what rate one or two points will buy you. Then you’ll have to do the math to see if it’s worth the added expense. One way to determine this value is to divide the cost of the lower rate by the amount of money the lower rate saves you on your monthly payment. Using our example of a $150,000 mortgage, if the lower rate (4.5 percent instead of 5 percent) saves you $45 a month on your payment and it costs you one and one-half points to buy it ($150,000 times 1.5 percent equals $2,250), it would take 60 months of these $45 a month savings to break even with the cost of the points. Worth the cost? You’ll be the final judge.



Consider a 3-2-1 Buy Down

This mortgage strategy is amortized over a 30-year note and provides an artificially low interest rate the first two years of the mortgage. Then in years three through 30 the interest rate is locked at the agreed upon maximum rate.

Let’s use our example above of the $150,000 mortgage. The interest rate for year one could be 3.25 percent with a monthly payment of $652.81. Year two the interest rate would be 4.25 percent with a monthly payment of $737.79. Years three through 30 would have a locked in interest rate of 5.25 percent with a monthly payment of $828.30.

Savings for the first 12 months of the mortgage would be $175.49 a month or $2,105.88 the first full year. Second year savings are a bit less; $90.51 a month or $1,086.12 for the second full year. Total savings for the first two years would be $3,191.92 which coincidentally enough is the exact cost of the 3-2-1 buy down in our scenario.

This mortgage strategy works best when the builder or seller agrees to pay these costs. And because this article is about getting the best deal on your next mortgage, it would be a good idea to compare what rate you could buy for those same 2 points to what the buy down loan would cost. It’s a good chance that if the seller is willing to cover the expense of the buy down loan, they also would cover the same expense for a permanently lower rate.



TREY BOWDEN is a licensed mortgage banker in Edmond. To read more, go to: homeownergonemad.blogspot.com.